UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
( X ) Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Quarterly Period Ended:
DECEMBER 31, 1999
OR
( ) Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition Period from _____________ to ______________.
Commission File Number 0-22045
APPLE HOMES CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-3525328
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
124 North Belair Road
Evans, Georgia 30809
-------------- -----
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (706) 650-2015
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such requirements
for the past 90 days.
YES X NO______
As of December 31, 1999, there were 2,091,367 shares of Common Stock
outstanding.
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APPLE HOMES CORPORATION
FORM 10-Q
INDEX
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at December 31,
1999 and March 31, 1999 (Unaudited) 2
Consolidated Statements of Operations for the
Quarter ended December 31, 1999 and 1998 and
the Nine Months ended December 31, 1999 and
1999 (Unaudited) 4
Consolidated Statements of Changes in Stockholders'
Equity for the Nine Months Ended December 31, 1999
(Unaudited) 5
Consolidated Statements of Cash Flows for the Nine
Months ended December 31, 1999 and 1998
(Unaudited) 6
Notes to Consolidated Financial Statements (Unaudited) 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 17
1
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
APPLE HOMES CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
- - - - --------------------------------------------------------------------------------
Assets
December 31, March 31,
1999 1999
- - - - --------------------------------------------------------------------------------
Current assets
Cash $ 852,452 $ 683,452
Accounts receivable 146,024 781,723
Rebates receivable 207,852 409,011
Other receivables 46,483 57,645
Inventories 8,819,619 8,317,210
Other current assets 42,612 18,116
Deferred taxes 183,534 125,560
Notes receivable, current portion 51,344 544,955
----------- -----------
Total current assets 10,349,920 10,937,672
----------- -----------
Property and equipment, net 1,327,259 1,235,876
----------- -----------
Other assets
Notes receivable, net of current portion 430,136 184,215
Deferred loan costs, net of accumulated
amortization of $109,495 and $92,954 72,783 89,325
Goodwill, net of accumulated amortization
of $52,007 and $39,747 447,115 434,341
Other assets 12,545 43,195
----------- -----------
Total other assets 962,579 751,076
----------- -----------
TOTAL ASSETS $12,639,758 $12,924,624
=========== ===========
- - - - --------------------------------------------------------------------------------
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<CAPTION>
Consolidated Balance Sheets (con't.)
(Unaudited)
- - - - ------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
December 31, March 31,
1999 1999
- - - - ------------------------------------------------------------------------------------
Current liabilities
<S> <C> <C>
Floorplan payable $ 8,069,268 $ 7,993,154
Accounts payable 620,379 746,969
Sales tax payable 161,731 170,749
Accrued salaries and commissions 35,450 90,926
Other accrued liabilities 199,835 195,640
Customer deposits 63,357 132,037
Income tax payable 0 18,826
Due to minority stockholders 42,459 40,407
Notes payable, current portion 91,999 87,933
------------ ------------
Total current liabilities 9,284,478 9,476,641
------------ ------------
Long term liabilities
Notes payable 1,114,693 1,054,316
------------ ------------
Minority interest in net assets of
consolidated corporation 59,465 84,517
------------ ------------
Stockholders' equity
Common stock, $.002 par value; authorized
10,000,000 shares;2,091,367 and 2,091,539
issued and outstanding 4,183 4,183
Additional paid-in capital 2,772,049 2,772,909
Retained deficit (595,110) (467,942)
------------ ------------
Total stockholders' equity 2,181,122 2,309,150
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 12,639,758 $ 12,924,624
============ ============
- - - - ------------------------------------------------------------------------------------
See accompanying notes.
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<CAPTION>
APPLE HOMES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
- - - - --------------------------------------------------------------------------------------------------------------
Quarter ended December 31, Nine months ended December 31,
1999 1998 1999 1998
- - - - --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $ 8,610,355 $ 7,306,795 $ 25,554,467 $ 25,939,793
Cost of Sales 7,084,721 6,197,677 20,975,466 21,408,663
------------ ------------ ------------ ------------
Gross Profit 1,525,634 1,109,118 4,579,001 4,531,130
------------ ------------ ------------ ------------
Operating expenses
Compensation 868,446 806,660 2,457,342 2,263,564
Occupancy and vehicle 54,343 50,790 154,968 216,196
Advertising 91,855 178,293 468,588 479,765
Insurance 53,867 5,506 195,411 129,658
Taxes and licenses 89,389 72,077 273,808 204,884
Professional fees 43,783 21,888 183,224 88,685
Guarantee Fees 42,193 36,065 128,005 109,598
Depreciation and amortization 40,837 38,502 110,683 73,441
Utilities 71,094 62,042 235,611 210,474
Office and lot 249,802 102,577 619,721 448,898
Travel, training and entertainment 5,826 26,215 49,141 108,744
Rent and maintenance 95,712 85,290 307,070 299,345
------------ ------------ ------------ ------------
Total operating expenses 1,707,147 1,485,905 5,183,572 4,633,252
------------ ------------ ------------ ------------
Operating income (loss) (181,513) (376,787) (604,571) (102,122)
Other income (expense)
Finance participation 133,181 80,473 540,646 253,245
Rental income 21,082 20,405 58,943 54,804
Interest income 13,254 20,885 40,776 55,676
Commissions 98,355 99,632 270,601 154,093
Gain(Loss) on sale of assets 0 0 (11,428) 30,657
Other income (expense) (9,694) (2,623) (1,541) (8,093)
Interest expense (156,242) (111,268) (501,400) (268,764)
------------ ------------ ------------ ------------
Total other income (expense) 99,936 107,504 396,597 271,618
------------ ------------ ------------ ------------
Income (loss) before income tax provision
and minority interest (81,577) (269,283) (207,974) 169,496
Income tax (provision) benefit 30,738 161,491 82,454 (77,142)
Minority interest in net (income) loss
of consolidated subsidiaries (1,441) 26,379 (1,648) (4,254)
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (52,280) $ (81,413) ($ 127,168) $ 88,100
============ ============ ============ ============
Per share data:
Weighted avg number of shares outstanding 2,091,367 1,874,632 2,091,481 1,925,012
Net income (loss) per share (0.025) (0.043) (0.061) 0.046
- - - - --------------------------------------------------------------------------------------------------------------
See accompanying notes.
4
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<CAPTION>
APPLE HOMES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
Nine months ended December 31, 1999
- - - - ----------------------------------------------------------------------------------------------------
Additional Retained
Number of Common Paid-in Earnings
Shares Stock Capital (Deficit) Total
- - - - ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, March 31, 1999 2,091,539 $ 4,183 $ 2,772,909 $ (467,942) $ 2,309,150
Redeemption of stock (172) (860) (860)
Net loss (127,168) (127,168)
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1999 2,091,367 $ 4,183 $ 2,772,049 $ (595,110) $ 2,181,122
=========== =========== =========== =========== ===========
- - - - ----------------------------------------------------------------------------------------------------
See accompanying notes.
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<CAPTION>
APPLE HOMES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
- - - - -------------------------------------------------------------------------------------------------
For the Nine Months Ended December 31,
--------------------------------------
1999 1998
- - - - -------------------------------------------------------------------------------------------------
Cash flows from operating activities:
<S> <C> <C>
Net income (loss) $ (127,168) $ 88,100
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities
Bad debt expense 56,160 42,080
Deferred income taxes (57,974) 53,209
Depreciation and amortization 110,677 73,441
Loss on disposal of fixed assets 11,428 --
Issuance of common stock for
professional services -- 74,000
Issuance of common stock in lieu of
payment of interest expense -- 83,850
Minority interest in net income of
consolidated subsidiary 1,648 4,254
Change in assets and liabilities, net of effects from
purchase of subsidiary
Accounts receivable 635,699 (113,744)
Other receivables 212,321 (65,114)
Inventories (409,456) (2,490,174)
Other current assets (24,496) 90,087
Notes receivable 184,577 (237,506)
Other assets 30,650 (12,750)
Floorplan payable 76,114 2,633,821
Accounts payable (126,590) 180,946
Accrued expenses (60,299) (389,429)
Customer deposits (68,680) (22,287)
Other liabilities (18,826) (61,156)
----------- -----------
Net cash provided by operating activities 425,785 (68,372)
----------- -----------
Cash flows from investing activities:
Additions to property and equipment (39,374) --
Proceeds from sale of fixed assets 7,750 --
Purchase minority ownership from shareholder (38,646) --
----------- -----------
Net cash (used in) investing activities (70,270) --
----------- -----------
- - - - -------------------------------------------------------------------------------------------------
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<CAPTION>
APPLE HOMES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (con't.)
(Unaudited)
- - - - ------------------------------------------------------------------------------------------------
For the Nine Months Ended December 31,
--------------------------------------
1999 1998
- - - - ------------------------------------------------------------------------------------------------
Cash flows from financing activities:
<S> <C> <C>
Principal payments on notes payable $(207,679) $(216,712)
Addition of notes payable 33,060 --
Repurchase of 172 shares common stock (860) --
Proceeds from issuance of warrants and stock -- 99,500
Due to/from minority stockholders, net (11,036) (74,158)
--------- ---------
Net cash (used) by financing activities (186,515) (191,370)
--------- ---------
Net increase (decrease) in cash 169,000 (259,742)
Cash, beginning of year 683,452 922,176
--------- ---------
Cash, end of nine months $ 852,452 $ 662,434
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the nine months for interest $ 481,637 $ 333,976
========= =========
Cash paid during the nine months for income taxes $ 23,779 $ 8,770
========= =========
Non cash investing and financing activities:
Financed property and equipment purchases $ 121,180 $ 234,369
Repossessed mobile home units
converted to inventory 106,693 210,000
Land reclassed from inventory to fixed assets 70,000 --
Rental units reclassed to inventory 37,118 --
Financed inventory 18,142 --
Note payable and interest converted to common stock -- 83,850
Issuance of stock for professional services -- 74,000
Debentures converted to stock -- 75,000
- - - - ------------------------------------------------------------------------------------------------
See accompanying notes.
7
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APPLE HOMES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - --------------------------------------------------------------------------------
NOTE A - BASIS OF PRESENTATION
The unaudited financial information included in this report includes all
adjustments (consisting of only normal recurring adjustments) which are, in the
opinion of management, necessary to reflect a fair statement of the results for
the interim periods presented. The operations for the interim periods shown
herein are not necessarily indicative of the results of the full fiscal year.
While certain information and footnote disclosure normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the Securities and Exchange
Commission rules and regulations governing Form 10-Q, the Company believes that
the disclosures herein are adequate to make the information presented not
misleading. The condensed financial statements included in this report should be
read in conjunction with the audited financial statements and notes thereto
included in the Registrant's March 31, 1999 year end report and the unaudited
June 30, 1999 quarterly report included in the Form 10, Amendment 4 filed with
the SEC on January 11, 2000. The report should also be read in conjunction with
the unaudited September 30, 1999 10-Q/A report filed with the SEC on December
27, 1999.
NOTE B - INCREASE IN FLOORPLAN LINE OF CREDIT
The Company has completed a new floor plan lending contract with John Deere
Credit Company, for $2 million dollars. The contract that the Company held with
Transamerica Distribution Finance for $1.2 million was terminated on November
22, 1999. The line of credit contracts held with local banks have increased,
from $275,000 to $300,000, effective January 21, 2000. The total floor plan line
of credit available to the Company after all of these changes is $11.3 million.
It should be noted that all major floor plan contracts are subject to minor
increases and decreases depending on the needs of the Company.
8
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APPLE HOMES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - --------------------------------------------------------------------------------
NOTE C - SELECTED QUARTERLY FINANCIAL DATA
(in thousands except per share data and operating data)
1999
----
June 30 September 30 December 31
-------------------------------------------
Net sales $ 9,141 $ 7,803 $ 8,610
Gross Profit 1,601 1,452 7,084
Net income (loss) (8) (66) (52)
Earnings per share (.004) (.032) (.025)
Weighted average
shares outstanding 2,091,539 2,091,538 2,091,367
Operating Data:
Homes Sold 194 182 182
Number of Retail Centers 12 12 12
Weighted Avg Units sold/ctr 16 15 15
1998
----
June 30 September 30 December 31
-----------------------------------------
Net sales $ 8,143 $ 10,490 $ 7,307
Gross Profit 1,745 1,677 6,198
Net income (loss) 149 20 (81)
Earnings per share .007 .011 (.043)
Weighted average
shares outstanding 1,811,942 2,091,538 1,874,632
Operating Data:
Homes Sold 198 249 170
Number of Retail Centers 12 12 12
Weighted Avg Units sold/ctr 16 21 14
9
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Item 2. Management's Discussion and Analysis of Financial Conditions and Results
of Operations
RESULTS OF OPERATIONS
Results of Operations - Quarters ended December 31, 1999 and 1998
The following table shows the components of the results of operations for fiscal
quarters ended December 31, 1999 and 1998 in amounts and percentages of revenues
(000 omitted)
QUARTER ENDED DECEMBER 31
DESCRIPTION 1999 1998
- - - - -------------------------------------------------------------------------------
Net Sales $ 8,610 100.0% $ 7,307 100.0%
Cost of Sales 7,084 82.3% 6,198 84.8%
----------------------------------------
Gross Profit 1,526 17.7% 1,109 15.2%
Operating Expenses:
Compensation 868 10.1% 807 11.0%
Occupancy and vehicle 54 0.6% 51 0.7%
Advertising 92 1.1% 178 2.4%
Insurance 54 0.6% 6 0.1%
Taxes and licenses 89 1.0% 72 1.0%
Professional fees 44 0.5% 22 0.3%
Guarantee fees 42 0.5% 36 0.5%
Depreciation and amortization 41 0.5% 38 0.5%
Utilities 71 0.8% 62 0.8%
Office and lot 250 2.9% 102 1.4%
Travel,training and entertainment 6 0.1% 26 0.4%
Rent and maintenance 96 1.1% 85 1.2%
----------------------------------------
Total Operating Expenses 1,707 19.8% 1,485 20.3%
Other Income (Expense):
Finance participation 133 1.5% 80 1.1%
Rental income 21 0.2% 20 0.3%
Interest income 13 0.2% 21 0.3%
Commissions 98 1.1% 100 1.4%
Gain (loss) on sale of assets -- 0.0% -- 0.0%
Other income (expense) (10) -0.1% (3) 0.0%
Interest expense (156) -1.8% (111) -1.5%
----------------------------------------
Total Other Income (Expense) 99 1.1% 107 1.5%
Income(Loss) before Income Tax
Provision and Minority Interest (82) -1.0% (269) -3.7%
Miniority interest in net income (1) 0.0% 26 0.4%
Income tax provision 31 0.4% 162 2.2%
----------------------------------------
Net Income $ (52) -0.6% $ (81) -1.1%
========================================
10
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Results of Operations - Nine Months ended December 31, 1999 and 1998
The following table shows the components of the results of operations for the
fiscal nine months ended December 31, 1999 and 1998 in amounts and percentages
of revenues (000 omitted)
NINE MONTHS ENDED DECEMBER 30
DESCRIPTION 1999 1998
- - - - --------------------------------------------------------------------------------
Net Sales $ 25,554 100.0% $ 25,940 100.0%
Cost of Sales 20,975 82.1% 21,409 82.5%
------------------------------------------
Gross Profit 4,579 17.9% 4,531 17.5%
Operating Expenses:
Compensation 2,457 9.6% 2,263 8.7%
Occupancy and vehicle 155 0.6% 216 0.8%
Advertising 469 1.8% 480 1.9%
Insurance 195 0.8% 130 0.5%
Taxes and licenses 274 1.1% 205 0.8%
Professional fees 183 0.7% 89 0.3%
Guarantee fees 128 0.5% 110 0.4%
Depreciation and amortization 111 0.4% 73 0.3%
Utilities 236 0.9% 210 0.8%
Office and lot 620 2.4% 449 1.7%
Travel,training and entertainment 49 0.2% 109 0.4%
Rent and maintenance 307 1.2% 299 1.2%
------------------------------------------
Total Operating Expenses 5,184 20.3% 4,633 17.9%
Other Income (Expense):
Finance participation 540 2.1% 253 1.0%
Rental income 58 0.2% 55 0.2%
Interest income 40 0.2% 55 0.2%
Commissions 270 1.1% 154 0.6%
Gain (loss) on sale of assets (12) 0.0% 31 0.1%
Other income (expense) 2 0.0% (8) 0.0%
Interest expense (502) -2.0% (269) -1.0%
------------------------------------------
Total Other Income (Expense) 396 1.5% 271 1.0%
Income(Loss) before Income Tax
Provision and Minority Interest (209) -0.8% 169 0.7%
Miniority interest in net income (2) 0.0% (4) 0.0%
Income tax provision 82 0.3% (77) -0.3%
------------------------------------------
Net Income $ (127) -0.5% $ 88 0.3%
==========================================
11
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Comparison of Fiscal Quarters ended December 31, 1999 and 1998
As was discussed in our September 30, 1999 10-Q Report, the manufactured housing
industry is experiencing a market softening and a slowdown in sales in the
geographic areas where our sales centers are located. More discussion about this
is included in the "Outlook" section of this report. This sales slowdown is
still having an effect on the results of the Company's operations, as evidenced
in our financial statements. The December 31, 1999 quarter showed a loss of
$52,280 as compared with a loss of $81,413 for the same time period of 1998.
Below is discussion about these results.
Net sales for the quarter ended December 31, 1999, $8,610,355, were better than
the same quarter of the previous year of $7,306,795 and gross profits increased
from 15.2% in the 1998 quarter to 17.7% in the 1999 quarter. The increase in
gross profit percentages is one of management's priorities. We are constantly
striving to educate our sales force on how to achieve more income from each sale
that is made. The net sales increase from a year ago is encouraging, since the
market softening has been effecting our industry for almost a full year at this
point.
The total operating expenses, as a percentage of sales, have decreased in
comparison to the prior year. The quarter ended December 31, 1999 shows total
operating expenses as 19.8% of sales, and the quarter ended December 31, 1998
had operating expenses of 20.3% of sales. Management is excited about this
improvement and will continue to be working on cutting costs in this area.
Other income decreased slightly in the December 31, 1999 quarter, as compared to
the December 31, 1998 quarter. Although finance participation, the income that
we receive from retail lenders in return for sending our customers to them,
increased from $80,473 in 1998 to $133,181 in 1999, the interest expense that
the Company had to pay increased from $111,268 in 1998 to $156,242 in 1999. This
offset any income gains that we had made. Management is currently negotiating
with our manufacturers to reduce our interest expenses, and we expect to see
improvement in this area in the next few quarters.
12
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Comparison of Nine Months Ended December 31, 1999 and 1998
The net loss for the nine months ended December 31, 1999 of $127,168, indicates
that the Company is still being affected by the market downturn and increased
competition that has been discussed in previous reports and is also discussed
below in "Outlook." The nine months ended December 31, 1998 showed net income of
$88,100.
The net sales for the nine months ended December 31, 1999 were $25,554,467, as
compared with $25,939,793 for the same period of 1998. Gross profit on sales
increased for the 1999 period to 17.9% over 17.5% for the 1998 period. This
continuing improvement in gross profits, as the Company has been showing for the
last two quarters, confirms management's strong emphasis on improving the amount
of profit made on each sale.
The operating expenses for the nine months ended December 31, 1999 and 1998 were
$5,183,572 and $4,633,252, respectively. This increase is the cause of our
continued lack of profits. Professional fees have increased more than $94,000 in
the first nine months of our fiscal year; these costs are directly related to
the increased costs of being a public, reporting company. Office and lot
expenses have increased more that $170,000 during the first nine months, due
mostly to improvements made to the appearance of our sales locations in efforts
to continue to attract customers. Compensation costs have increased over
$193,000; these costs relate to the increased corporate staff required to
maintain the records required for public filings and increased needs at the
sales locations. Other costs that have increased include Insurance and Taxes and
Licenses. Both of these increases are within expected ranges, and are for costs
that will continue. On the positive side, Occupancy and vehicle costs have
decreased more than $61,000 in the first nine months of 1999 as compared to
1998. Travel, training and entertainment has also decreased over $59,000.
Other income (expense) for the nine months ended December 31, 1999 is showing an
overall increase of $124,979 over the 1998 results. This improvement is due to
increased finance participation income and increased commissions being earned on
items such as sales tax commissions, insurance commissions and sales of
repossessed homes belonging to other entities where we act as a sales agent. Our
interest expense has also increased dramatically, from $268,764 for the nine
months ended December 1998 to $501,400 for the current period. Management is
currently working on programs with our manufacturers that should reduce these
costs in the next few quarters. By March 1, 2000, the Company will have
exclusive arrangements with manufacturers on all of our sales locations. An
exclusive arrangement means that we will carry a specific amount of one
manufacturer's inventory on each lot, usually 75%, and that manufacturer will
then pay the floor plan interest incurred on that location for their units.
Exclusive arrangements also depend on the Company meeting a specified minimum
volume of sales for that manufacturer. The market slowdown has caused the
company to not meet this minimum in the past three quarters. This has
substantially increased our interest expense. Management believes that we should
be in a better position to meet these minimum requirements through controlled
13
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inventory management, which allows us to maximize our volume each quarter. We
are also actively liquidating older inventory that may cause increased interest
expense, since the manufacturers do not always reimburse us for these costs.
The nine months ended December 31, 1999 include a tax benefit of $82,454 in the
net income amount. This benefit is reflected on the balance sheet as a deferred
tax asset. Management continues to believe that this asset is accurate, and with
the start of a recovery occurring in the market, is confident in the Company's
ability to use the asset before its expiration date with the IRS.
OUTLOOK
Most industry veterans believe this present market slowdown will continue
through December 2000. The Manufactured Housing Institute, quoted from the
January 2000 issue of "Manufactured Home Merchandiser," states that the "effect
this oversupply situation will have on 2000 production and shipment figures will
depend on how long it takes for the housing market to absorb the existing
inventory of homes." Our sales results relate directly to the manufacturer's
production and shipping. We agree that the slowdown in sales will continue at
least through our fourth fiscal quarter ending March 2000. Whether it continues
beyond that will probably be determined to a large degree by how many sales
centers go out of business between now and the end of the first calendar quarter
of the year 2000. Every time a sales center goes out of business, that area is
overloaded with distressed inventory. The ability of the market to absorb that
inventory is a major factor in coming out of this slowdown. The fact that Apple
Homes had sales for the December 1999 quarter exceeding those of the December
1998 quarter is a very positive sign; however, management does not think this
market has corrected yet, or that the end of the slowdown is here. Management is
confident in our ability to ride out the situation, and we believe that the cost
savings programs that we have instituted will allow us to show profits in the
future.
One very positive area is that the ability to obtain retail financing for our
customers continues to be relatively easy. There are many more strong financial
institutions committed to the manufactured housing industry now than there were
in previous slowdowns. We don't foresee any problems relating to this vital area
of retail financing.
The Company has noted that interest rates are increasing and are predicted to
continue to do so; however, our industry is not usually as interest rate
sensitive as the stick built housing industry. Management does not anticipate
any further slowdown in sales related to interest rates.
YEAR 2000 COMPLIANCE
The Company experienced no Year 2000 problems as the calendar rolled forward
into January 2000. Management had previously identified three areas of concern
related to Y2K compliance, these were: (1) commercial software (including
accounting and financial systems) used in the corporate and sales offices, (2)
14
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computer hardware with the Company, and (3) facilities-related applications and
processes, such as telecommunications and equipment with embedded chips. Each of
these areas is discussed below.
The commercial software that is used by the Company, both at the corporate
offices and at the sales locations, was all reported to be Y2K compliant by the
manufacturers of the software. The Company made sure that any available updates
that existed were installed, and thus experienced no problems related to Y2K
issues. After operating for more than a month in the new year, we are confident
that no problems are going to occur.
The computer hardware owned by the Company is all relatively new, due to our
expansion in the last two years. We did not anticipate any problems with the Y2K
issues, and we did not have any. We have been assured by our outside computer
consultants that the hardware that we presently own will continue to function as
it is designed, and no problems are anticipated.
The recent expansion also provided us with new (or near new) telecommunication
and equipment relying on embedded chips. None of these systems or equipment
malfunctioned in any way as the calendar changed to January 2000.
Another Y2K concern related to the ability of our vendors and suppliers to
address Year 2000 compliance issues that could affect their interactions with
our company. We have spoken with all of the major suppliers and vendors of the
company, and have been told that there were no problems noted. We have not seen
any indication that we should continue to have concerns regarding our vendors or
suppliers readiness, nor have we experienced any ill effects related to Y2K
issues in this regard.
Management believes that there is no longer any reason to be concerned about
Year 2000 issues and their effect on the continuing operations of the Company.
We will, of course, continue to watch our equipment and computer systems, and
will respond appropriately if any unanticipated events do occur.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow increased by $169,000 for the nine months ended December 31, 1999.
This increase in cash flow occurred mostly in the latest quarter. This compares
favorably with the cash flow decrease of $259,742 as of December 31, 1998. This
positive cash flow is being sustained by operating activities, and management is
encouraged by these results. We are confident that this, coupled with the fact
that sales are now beginning to pick up, indicates that the present market
slowdown is beginning to show signs of recovery. As we enter our traditionally
strongest sales season, we are in the position to begin to show profits and
demonstrate the results of all of the hard work that management has done to
streamline the Company's operations.
Expenditures for capital resources are continuing to be reduced while the
Company goes through the slowdown in sales in our market area. While management
realizes that limiting growth and expansion will limit our ability to grow sales
15
<PAGE>
as we have done in the past three years, current conditions in the industry
warrant this slowdown. The Company has made the decision to open a new sales
location in Milledgeville, Georgia, with the anticipated opening date being
March 2000. The opening of this new location is being opened with the support
and financial assistance of one of our manufacturers, in an effort to further
build our relationship with them. Management has not changed from its commitment
to grow slowly until sales pick back up in our area. The possibility of opening
another sales location in addition to the one mentioned above has been
discussed; however, no decisions have been made.
FORWARD LOOKING STATEMENTS
The preceding discussion by the management of the Company contains various
forward looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, which represent the Company's expectations or beliefs concerning
future events. When used in this document, the words "expects," "plans,"
"anticipates," and similar expressions are intended to identify forward looking
statements. Forward looking statements include, without limitation, expectations
as to results of operations and financial condition including changes in
capacity, revenues and costs, expectations of future financing needs, Year 2000
readiness, overall economic projections and the Company's overall objectives for
future operation. All forward looking statements in this report are based upon
information available to management on the date of this report. The Company
undertakes no obligation to publicly update or revise any forward looking
statement, whether as a result of new information, future events, or otherwise.
Forward looking statements are subject to a number of factors that could cause
actual results to differ materially from our expectations. The following
factors, in addition to other possible factors not listed, could cause the
Company's actual results to differ materially from those expressed in forward
looking statements: uncertainty of future sales due primarily to the slowdown in
sales the market area is now experiencing, agreements with manufacturers and
lenders related to our inventory management, ability to obtain continuing
financing for our customers at reasonable and affordable interest rates,
competition within the industry within our market area, a flooding of our market
area with reduced price inventory due primarily to other locations going out of
business, government regulations, Year 2000 readiness of our primary
manufacturers and financing companies and other economic conditions and factors
beyond our control.
Additional information concerning these and other factors is contained in the
Company's Form 10 filing with the Securities and Exchange Commission dated July
16, 1999 and amended on September 10, 1999, October 20, 1999, December 27, 1999
and January 11, 2000.
16
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required to be filed by Item 601 of Regulation S-K:
11.1 Earnings per Share Calculation
27 Financial Data Schedule
(b) Reports on Form 8-K
None
17
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
APPLE HOMES CORPORATION
February 14, 2000 /s/ Laura H. Rollins
- - - - ----------------- --------------------
(Date) Laura H. Rollins
Chief Financial Officer
Apple Homes Corporation
18
Exhibit 11.1 - Earnings per Share Calculation
Apple Homes Corporation
Earnings per Share Calculation
Nine Months Quarter
ended ended
December 31, December 31,
1999 1999
----------- -----------
Basic EPS:
Income available to common stockholders $ (127,168) $ (52,280)
Weighted average # of shares outstanding 2,091,481 2,091,367
----------- -----------
Basic EPS (0.061) (0.025)
=========== ===========
Diluted EPS:
Income available to common stockholders $ (127,168) $ (52,280)
Adjusted for 10% interest charge on
convertible debentures 31,333 10,625
Adjusted for income tax effect @ 40.00% 38,334 16,662
----------- -----------
Diluted income available to common
stockholders (57,501) (24,993)
Diluted weighted average # of shares
outstanding 2,312,038 2,312,038
----------- -----------
Diluted EPS (0.025) (0.011)
=========== ===========
antidilutive antidilutive
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE NINE MONTHS ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 852,452
<SECURITIES> 0
<RECEIVABLES> 925,117
<ALLOWANCES> 43,278
<INVENTORY> 8,819,619
<CURRENT-ASSETS> 10,349,920
<PP&E> 1,513,286
<DEPRECIATION> 186,027
<TOTAL-ASSETS> 12,639,758
<CURRENT-LIABILITIES> 9,284,478
<BONDS> 1,206,692
4,183
0
<COMMON> 0
<OTHER-SE> 2,176,939
<TOTAL-LIABILITY-AND-EQUITY> 12,639,758
<SALES> 25,554,467
<TOTAL-REVENUES> 26,465,433
<CGS> 20,975,466
<TOTAL-COSTS> 26,673,407
<OTHER-EXPENSES> 1,648
<LOSS-PROVISION> 42,673
<INTEREST-EXPENSE> 501,400
<INCOME-PRETAX> (207,974)
<INCOME-TAX> (82,454)
<INCOME-CONTINUING> (127,168)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (127,168)
<EPS-BASIC> (0.061)
<EPS-DILUTED> (0.061)
</TABLE>
